Psychiatry seemed poised on the edge of a breakthrough. In early 2011, after decades of no radically new drugs, a fundamentally different schizophrenia treatment promised relief from the psychotic hallucinations and delusions plaguing people with the disease. The new compound, devised by chemists at Eli Lilly and Co., hit a target in the brain that older medicines had ignored.

All signs pointed to success. In mice, a similar molecule could block the schizophrenia-like effects of PCP. In people the new drug, LY2140023, appeared to curb psychotic behavior with few side effects, small pilot studies showed. In March 2011, Lilly began enrolling 1,100 people in a definitive Phase III clinical trial, the final test designed to show conclusively that the new compound worked....

...many in the field weren’t surprised. For new drugs designed to treat complex brain disorders such as schizophrenia, depression and anxiety, the odds of success are exceedingly slim. Given the current state of affairs in the drug discovery world, some would argue those odds are close to zero. Not a single drug designed to treat a psychiatric illness in a novel way has reached patients in more than 30 years, argues psychiatrist Christian Fibiger of the University of British Columbia in Kelowna, who described the problem in a 2012 Schizophrenia Bulletin editorial. “For me, the data are in,” says Fibiger, who has developed drugs at several major pharmaceutical companies. “We’ve got to change. This isn’t working....”

Despite a dire need for better treatments and a large market — one in four Americans suffers from a diagnosable mental illness in any given year — many drug companies are retreating. Though some small, targeted efforts remain in place, pharmaceutical giants Glaxo­SmithKline, AstraZeneca and Novartis recently shuttered their main brain drug discovery programs. “It’s pretty scary when you get down to it,” says Kenneth Kaitin, director of the Tufts Center for the Study of Drug Development.

This exodus makes sense: Companies can’t afford to spend so much time and money only to have a drug fail in Phase III trials, as LY2140023 did.

Psychiatric drugs rank among the highest in pharmaceutical sales. But some worry that existing medicines fail to help many people and that efforts to find new therapies are lagging.

... Companies that endure a late-stage failure of a drug after years of testing take a huge financial hit. “Very few companies can withstand that,” he says.

The situation is grim, but not hopeless, says Insel. At a time when major pharmaceutical companies are abandoning psychiatric drug development, Insel says he is doubling down, investing federal grant money in places where investors fear to tread. “There are a whole series of pretty amazing developments that I think are worth investing in,” he says...."